Energy Price Guarantee changes: What do they mean for you?

Watch: Jeremy Hunt scales back energy price cap duration to stabilise markets

The government's freeze on the price of energy will be scrapped next April, the new chancellor has announced.

Jeremy Hunt, who only replaced the sacked Kwasi Kwarteng on Friday, announced that the energy price guarantee will only last for six months to cover this winter, instead of the planned two years.

Here is what his announcement means for consumers:

What happens this winter?

Under the energy price guarantee the cost of energy is capped for consumers, meaning a bill of £2,500 per year for the average household until April 2023.

The cap applies to the cost of a unit of energy rather than overall bills, so some households will pay more than that, depending on their energy use.

PA video grab image of Chancellor Jeremy Hunt speaking to the nation from the Treasury in London, during an emergency statement as he confirmed he is ditching many of the measures in the mini-budget, including the planned cut to income tax. Picture date: Monday October 17, 2022.
Chancellor Jeremy Hunt has cut short the Energy Price Guarantee scheme. (PA)

The scheme offers the same help to all households, no matter what their income.

Originally, under Liz Truss's plans, this guarantee was due to last for two years.

On Monday, Hunt said: "This is a landmark policy supporting millions of people through a difficult winter and today I want to confirm that the support we are providing between now and April next year will not change.

“But beyond that, the prime minister and I have agreed it would not be responsible to continue exposing public finances to unlimited volatility in international gas prices."

The energy bill relief scheme for businesses, which will cap corporate energy bills, is also set to end in April.

What happens after that?

The future for energy bills is unclear.

In his emergency statement on Monday, Hunt said that the Treasury will conduct a review into how to support households from April onwards with energy bills.

He said: "I am announcing today a Treasury-led review into how we support energy bills beyond April next year.

“The objective is to design a new approach that will cost the taxpayer significantly less than planned whilst ensuring enough support for those in need.

The energy price guarantee is set to end in April. (Yahoo/Ofgem/Resolution Foundation)
The energy price guarantee is set to end in April. (Yahoo/Ofgem/Resolution Foundation)
EMBARGOED TO 0001 WEDNESDAY OCTOBER 12 File photo dated 03/02/22 of an online energy bill, as people could be more at risk of making hazardous choices about how they heat and light their home this winter as energy costs rise, an insurer is warning.
The future cost of energy bills is uncertain after it was announced the Energy Price Guarantee will end in April 2023. (PA)

“Any support for businesses will be targeted to those most affected and the new approach will better incentivise energy efficiency."

The review will design a new approach aiming to cost taxpayers significantly less than planned, while ensuring enough support for those in need, the government said.

In August, before the Energy Price Guarantee was introduced, market researchers Cornwall Insight predicted that the average household's annual bill would be £5,341 in April 2023.

The same month, regulator Ofgem raised the energy price cap by 80%, which would have taken the average energy bill to £3,549 from the beginning of this month.

On Monday, the Resolution Foundation think tank said the energy price cap is "on course to hit £4,000 next April".

What do the experts say?

Martin Lewis, founder of MoneySavingExpert, said: "While energy intervention was desperately needed - a universal energy price guarantee was always expensive and poorly targeted.

"The post-April support will still need reach a decent way up the net and support middle earners, energy rates are still huge."

Paul Johnson, director at the Institute for Fiscal Studies, welcomed the decision to reassess the scheme.

He said: "While large-scale untargeted support for households this winter was perhaps unavoidable, we need to do everything possible to put in place a better designed, better targeted and less expensive scheme next year.

Prime Minister Liz Truss during a press conference in the briefing room at Downing Street, London. Picture date: Friday October 14, 2022.
Prime minister Liz Truss has seen her economic policy ripped apart. (PA)

"Even a slightly less generous scheme could save billions, mean less government debt needs to be sold, and therefore reduce future interest payments.’

The Resolution Foundation's chief executive, Torsten Bell, said: “The price of shielding the public finances from wholesale gas markets next year is more pressure on households, with the energy price cap now on course to hit £4,000 next April – almost double its effective level today.

“These are tough choices being made by the new chancellor that will reduce the scale of public spending cuts set to be announced on 31 October – even more so if they lead markets to reduce the interest rates they charge government for borrowing."

Mike Foster, chief executive of the Energy and Utilities Alliance, said: “News that the energy price cap protection coming to an end in April will surprise and worry millions of hard-pressed families.

“Together with the announcement that promised tax cuts have also been withdrawn will heap huge financial pressure on to those already struggling to pay their bills.”

Watch: Jeremy Hunt reverses Liz Truss's tax cuts